John Singleton and Geoff Dixon to establish $200 million pub fund

The launch of a $200 million hotel leisure fund by three of Sydney’s largest investors in the pub market is a vote of confidence in the sector, but is unlikely to lead to a wider rise in demand for hotel assets, according to a leading hotel broker.

A report in The Australian announced the plans of former Qantas chief executive Geoff Dixon, adverting entrepreneur John Singleton and investment banker Mark Carnegie to be the “cornerstone investors in the new fund”, which will have $100 million in equity with the remainder being bank debt.

Nick Tinning of Chris Tinning & Company said the establishment of the fund showed there were profit-making opportunities in the sector.

“They are showing some confidence in the marketplace where of recent times there has been a lack of confidence due to pre-commitment rumours running about. These guys obviously have some sort of confidence.”

But Tinning cautioned the overall impact was likely to be limited.

“I don’t see them pushing the value of hotels up – more just selecting assets. They’ll be buying at realistic prices, otherwise they’ll leave the hotels alone,” he said.

This supports statements by Dixon to The Australian.

“We have only gone into pubs when we thought we could buy them at the right price. Obviously, back when the music was playing last decade, when asset prices were so hugely inflated, that wasn’t the time,” Dixon said.

Tinning signalled his support for the more cautious approach.

“The problem we ran into last time was that we had inexperienced purchases in the marketplace,” he said, referring to boom times in 2005-06 that saw many investors borrowing heavily to buy into the sector before being squeezed during the global financial crisis.

In recent months, the threat of mandatory pre-commitment for poker machines compounded bearish sentiments in the sector.

Dixon told The Australian that he believed valuations in the pub market had hit rock bottom, a view shared by Tinning.

Nonetheless, auction results for pub markets have been flat, indicating no broader increased demand in recent months.

The new fund comes on the back of grocer Woolworths increasing its ownership of Australia’s pub and poker machine sector, after signing a $500 million dollar deal for management rights to 32 hotels in New South Wales.